“We thought we had years. We had months. So it was a lesson about timing … You can get a fair chunk of your analysis right but if the timing is wrong it doesn’t work.”
The second mistake was one of personnel. Ferris writes that the man charged with leading the company, Manfred Moon, was a “dyed-in-the-wool manufacturer”. While he understood intellectually the need for change, actually leading that change wasn’t so easy. “Perhaps our expectations were unfair,” Ferris says. “He was a production executive and we were trying to move the company rapidly to become a marketing business.
“The lesson for us was that we were naïve in our assessment of what would be required of this CEO for him to dramatically change the business model.”
Ferris’ book is peppered with assessments of the strengths and weaknesses of those he dealt with. “People make the difference,” Ferris says. “It’s almost a cliché but it’s overwhelmingly the case.
“What distinguishes us is that we’re not just buying and selling on the public market. We can’t just sell out when things aren’t attractive. We are the owners – usually lock, stock and barrel – along with the management team who also have equity.
“The advantage is that we are aligned with management in such a fundamentally different way to owners in a listed-company situation. Most company executives never experience that, and most shareholders never get to meet their managers. But us, we live or die with management.”
I ask Ferris how he can tell when an executive has what it takes.
He pauses, before quoting 19th-century French author Victor Hugo, who wrote in Les Misérables: “A genius is a creature with a telescope in one eye and a microscope in the other, rummaging about in the infinitely large and the infinitely small.”
“When I look back at our truly great successes – Seek, Looksmart, Austar, United Malt Holdings – the CEOs running those businesses each had a sustained attention to detail in and about their business, as well as a broad, forward-looking understanding of the strategic positioning of their business in the sector. They all know all about their competitors, and they are always inside the heads of their customers.
“If CEOs have those qualities, they make a difference to your investment outcomes. And needless to say, they make a huge difference to our enjoyment of life.”
Ferris says that when CHAMP is considering buying a company, both senior and junior partners spend as much time as they can with its executives. “We look for those sorts of qualities. I don’t think you can quantitatively test for it, though we do look at their track record. But you just learn to look for it and listen hard in the time you do spend with these people.”
Does having impeccable personal networks help? Absolutely, Ferris says. He completed an MBA at Harvard Business School, where he met many of those with whom he would later go into business. Others he met at the Young Presidents’ Forum (a worldwide networking group for young chief executives).
“We try to have proprietary deals wherever possible,” he says, referring to deals where CHAMP is the only bidder and can bring expertise or experience that makes it a natural fit for a company. “We do compete from time to time in auctions for businesses, but we have our best success with people in businesses we come across through our networks, where we can bring our own special angle to the deal.”
CHAMP has offices in New York and Singapore. “We can really help mid-sized businesses not shy away from cross-border activity; in fact, we can enhance their opportunities for offshore projects. We’re the only Australian private equity office set up in Asia, and over many years we’ve built a really great network of people from the region who can help our portfolio companies.”
Ferris gives three reasons why private equity has a bright future in Australia:
“The first thing I realised, along with my partners, was that there was such a high quality of senior and mid-level management executives in Australian mid-sized companies,” he says. “These excellent management teams are realising that with private equity, they can become owners and not just hired hands … For some management teams that’s really exciting and empowering. And Australia’s blessed with the quality of its management.”
It’s a surprising assessment, given recent reports have often blamed Australian managers for the naiton’s ongoing productivity problems. In 2009, Management Matters, a report commissioned for the Federal Department of Innovation, concluded a lack of management training was to blame for our low productivity.
Ferris says bluntly that while he values education, he disagrees with the findings of the report.
“I value the commercial nous of people dealing with our relatively small market-economy. Often they’re dealing with international supply and domestic demand in a way that’s very different to those who do business in America or China. To be successful, you need to be a very quick-smart and tenacious executive, and I think we’ve got lots of those.”
Myriam Robin is a reporter for SmartCompany and its sister site LeadingCompany. She has degrees in economics, international studies and journalism. She likes writing about businesses taking risks and doing new things.
